How Board Members Really Feel About ESG, from Deniers to True Believers

Executive Summary

“Get the board of directors on board” is increasingly recognized as key to driving sustainable business practices in companies. But there is a substantial gap between aspirations and the capacity of their boards and firms to deliver on ESG issues. To better understand this gap and the frequency and depth at which sustainability is discussed during board meetings, we spoke to 25 experienced European non-executive directors representing 50 large, well-known companies. In return for the promise of anonymity, they were refreshingly frank in their feedback. Unsurprisingly, we encountered a wide range of individual attitudes—from out-and-out skepticism to fervent belief. Further analysis revealed five distinct archetypes of behavior, reflective of how board members react to sustainability: The Deniers; The Hardheaded; The Superficial; The Complacent and The True Believers. While we observed a tendency by directors to gravitate towards companies where they would be surrounded by the same type (‘birds of a feather flock together’), many found themselves on boards where members had very different ideas on how sustainability fits with their business principles and strategy. Thus, we identified strategies to help those directors eager to push for attention to sustainability.

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Driving sustainable business practices in companies requires involvement from boards of directors. And there is some evidence that sustainability is rising up the board agenda. Many board members today have the right aspirations, but there is a substantial gap between those aspirations and the capacity of their boards and firms to deliver.

To better understand this gap and the frequency and depth at which sustainability is discussed during board meetings, we interviewed 25 experienced European non-executive directors representing 50 large, well-known companies. In return for the promise of anonymity, they were refreshingly frank in their feedback.

Unsurprisingly, we encountered a wide range of individual attitudes — from out-and-out skepticism around the importance of Environmental, Social, and Governance (ESG) criteria to fervent belief. But when we looked a little more closely we discovered that directors cohere around five distinct archetypes of behavior. In profiling the different types, we identified strategies to help directors overcome resistance to ESG issues at the director level.

The Deniers

Deniers are the board members who see sustainability as nothing more than a buzzword or a fad. For companies where deniers are the dominant force on the board , sustainability is (at most) a page in the annual report. As open hostility to sustainability is largely unacceptable today, this archetype isn’t always obvious. In fact, environmental and social issues are most likely to be conspicuous by their absence.

One interviewee summed up his company’s attitude to sustainability as “the technocratic approach” admitting, “We are listed much higher on the Dow Jones Sustainability Index (DJSI) than we think we should be. Apparently, we have become very skilled in filling-out their 300-page questionnaire.”

Deniers are adept at “greenwashing,” using PR or corporate communications to overstate the environmental benefits, or understate the environmental damage, of a company’s products and services.

Overcoming denial.

Whether you find yourself on a board of deniers or merely reporting to them, it’s essential to meet them on their own terms. Approach sustainability — indirectly if necessary — through specific, concrete concepts like cost-reduction, business opportunity, consumer demand, or risk exposure, rather than abstract notions of “the planet” or “future generations.”

Choose your moment wisely. Never raise the issue in times of crisis. Patience is an essential strategy. The consensus from our small sample of sympathetic directors was that one-to-one conversations about sustainability were preferable to whole-board onslaughts.

The Hardheaded

For hardheaded board members, sustainability is a factor affecting their business, but it tends to be reduced to strategic reasoning. How can costs be minimized? Are there market opportunities? Hardheaded board members are particularly prevalent in organizations on the “dark side” of sustainability: oil and gas companies, transport operators, candy manufacturers and agrochemical giants all take a surprisingly keen interest in the environmental and human impact of their operations, as do businesses where health and safety is a major concern.

Hard-headed directors tend to raise quite complex ethical considerations to support their lack of action. For instance, one interviewee asked, “Who are we to say that rainforests are rainforests, when the prosperity of the local people comes from palm oil?”

Persuading the hardheaded.

Again, it’s essential to meet hardheaded board members on their own terms. They should be encouraged to drive their company to “be the best in class” or to choose a more ethically acceptable route that’s not too far from existing practice. We suggest appointing a dedicated sustainability director or simply additional non-executive directors from other industries, citing the need for diversity of thought.

Start with areas where the business case is strong and results are tangible. Consider making sustainability part of the risk or strategy committee to give it more skin in the game. However, it is also important that ideas generated get some whole-board attention.

The Superficial

Superficial directors are well-meaning but are often scared of taking the lead. They may be more concerned with being seen doing the right thing than actually doing it. Superficial archetypes have a shallow understanding of the need for sustainability. Conversations about sustainability go around in circles, rather than following linear arguments. The upshot is often that well-meaning boards pass the buck, rather than take action.

The worst boards of this kind implicitly promote greenwashing. By talking the talk, they encourage executives to do the same and fail to give the strategic framework executives need to take real action.

Turning good intentions into good results

The trick with these board members is to play to their good intentions. They often don’t know where to start, so make positive suggestions and choose them wisely. Isolate the issues that are close to the mission of the organization. Advocate for the creation of a dedicated sustainability committee: a transitional space where board members can talk through the issues and suggest concrete actions for the whole board to ratify.

The Complacent

Unfortunately, many early adopters of initiatives like CSR reports, green product lines, or responsible supply chains, have not kept up-to-date with the latest developments in sustainability. Directors in this category use past sustainability triumphs to shut down the conversation about sustainability. They invariably let good practice get in the way of best practice and this may result in doing even less than superficial board members.

Spurring the complacent into action

When dealing with complacent boards, as one director told us, “Don’t embarrass people, policy and decisions of the past 20 years.” Acknowledge past successes while highlighting current shortfalls. Seek out like-minded directors and create coalitions. Try to move the debate forward by focusing on small actions, rather than a wholesale strategic review. If you’re recruiting a new CEO, try to get sustainability credentials included in the recruitment criteria.

The True Believers

These boards members are characterized by the way they understand the term “sustainability.” For true believers, the long-term economic viability of their organization is closely linked and dependent on social and environmental responsibility.

True believers undertake careful analysis of business benefits and disadvantages with a long-term approach to governance. They recognize the fundamental changes needed so that environmental and human concerns become an innate driver of the company, deeply integrated in its strategy.

As one interviewee from a board of true believers noted: “Sustainability is no longer only about the environment, it has developed to a more holistic and broader view that you could call long-term value creation. The question is always: Are our products and business models future-proof?” This type is fully aware that sustainability is closely linked to basic questions of company purpose, core product offerings, business models and innovation.

Companies with true believer boards are likely to have: sustainable products (like “green bonds” or energy-saving devices); ethical supply chains; employment practices that exceed the regulatory minimum; a board “expertise matrix” that includes CSR; sustainability as a criterion for recruiting and remunerating senior executives; energy-neutral facilities and low-carbon operations; and a strong commitment to integrating sustainability into R&D and innovation.

True believers need to consider not only how best to engage with other board members but also not to get too carried away in advancing attention to sustainability relative to the economic constraints, albeit from a long-term perspective.

The gap between aspiration and action

Our interviews highlighted many different attitudes to sustainability between boards, and between board members. While some directors understand the importance of sustainability to a limited extent, others have a deeper holistic understanding of their responsibilities. Of the latter, some believe they are doing enough while others struggle to make a greater impact. Either way, as sustainability takes on more weight globally, and as investors continue to reward companies for improvements to material ESG issues, we believe it is only a matter of time before board directors find that bridging the gap between aspirations and action is a requirement of fiduciary duty, with all the attendant obligations and liabilities.

N. Craig Smith holds the INSEAD Chair in Ethics and Social Responsibility at INSEAD in Fontainebleau, France.

Ron Soonieus is an INSEAD executive in residence and Managing Partner at Camunico.